Crypto earnings & Capital Gains Tax

saor

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Snyper564

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Question about the term ''gross income".

A person is in a certain tax bracket with their job salary. Are trading profits a separate income and thus fall into their own tax bracket, or is an individuals tax bracket determined by the sum of all their income streams (what I assume is meant by gross income)?
Determined by all income added together...

So my crypto income is added to salary income.

Yes its likely to push you into a new bracket but remember that it's progressive. Your whole amount isnt taxed in the new bracket only new portion
 

saor

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Determined by all income added together...

So my crypto income is added to salary income.
How does this work in practice though? My employer pays my taxes. Must they now be aware of my other revenue streams so as to know which tax bracket I fall into so they can adjust the tax they're paying for me?

Yes its likely to push you into a new bracket but remember that it's progressive. Your whole amount isnt taxed in the new bracket only new portion
Not quite following...
 

Snyper564

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How does this work in practice though? My employer pays my taxes determined by my salary falls into a certain bracket. Must they now be aware of my other revenue streams so as to be know which bracket I fall into so they can adjust the tax they're paying for me?


Not quite following...
Your employee will continue to pay as normal.

You just become a provisional tax payer essentially. If you don't got his route, then it's just disclosed as additional income at year end when you submit your annual tax return and you will pay the extra in.

Your tax bracket is determines by your taxable income.

With addtional crypto income it's likely to push you from say 25 to 28 percent for example. Just remember all your income isn't taxes at 28 its only the additional income for example.

Pls ensure you keep good records. Esp where crypto is involved.

Sars will determine how much you pay when you submit the return that's not a determination you do. Obviously you can do tthe Calc tho
 

saor

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Your employee will continue to pay as normal.

You just become a provisional tax payer essentially. If you don't got his route, then it's just disclosed as additional income at year end when you submit your annual tax return and you will pay the extra in.

Your tax bracket is determines by your taxable income.

With addtional crypto income it's likely to push you from say 25 to 28 percent for example. Just remember all your income isn't taxes at 28 its only the additional income for example.

Pls ensure you keep good records. Esp where crypto is involved.

Sars will determine how much you pay when you submit the return that's not a determination you do. Obviously you can do tthe Calc tho
Cool thanks. Never had to worry about paying tax myself so kind of new to all this. Regarding the amount, I guess I wanted to set the tax aside into a separate account each month so it's there when it needs to be paid.

Anything specific re. keeping records you'd suggest?
 

Snyper564

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Cool thanks. Never had to worry about paying tax myself so kind of new to all this. Regarding the amount, I guess I wanted to set the tax aside into a separate account each month so it's there when it needs to be paid.

Anything specific re. keeping records you'd suggest?
Simple excel is sufficient overall.

For example.

Expense.
R100 000 1 JAN 2021

INCOME
R120 000 3 JAN 2021

PROFIT
R20 000

I recommend looking at Sars table and take a bracket or twos up percentage for example if you are now 25 rather keep say 30 percent of the profit aside rather more than less.

Ensure you keep all banking records sales and purchases.

Last thing you want is 120k income with no proof of 100k expense.
 

Wary GOM

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I am still wondering about some of the discussions earlier about cgt vs income tax. Apart from holding time, doesn't it depend on how the crypto is invested? It seems to make a difference for taxation whether you are investing in a security or trading currency. As I read it, if you hand crypto or anything else to "someone" with the expectation that they will increase the value to your benefit, then whatever it was is a security and taxation should be on the same basis as any other profits on disposal of a security. Just asking.
 

saor

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Simple excel is sufficient overall.

For example.

Expense.
R100 000 1 JAN 2021

INCOME
R120 000 3 JAN 2021

PROFIT
R20 000

I recommend looking at Sars table and take a bracket or twos up percentage for example if you are now 25 rather keep say 30 percent of the profit aside rather more than less.

Ensure you keep all banking records sales and purchases.

Last thing you want is 120k income with no proof of 100k expense.
By expense you're referring to the funding of the trading account or actual expenses?
 

Snyper564

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I am still wondering about some of the discussions earlier about cgt vs income tax. Apart from holding time, doesn't it depend on how the crypto is invested? It seems to make a difference for taxation whether you are investing in a security or trading currency. As I read it, if you hand crypto or anything else to "someone" with the expectation that they will increase the value to your benefit, then whatever it was is a security and taxation should be on the same basis as any other profits on disposal of a security. Just asking.
Capital vs revenue is something that would need to be determined

Trading often is clear cut income tax don't even try to dispute it.

Capital is a different story. Time is one of the factors or considerations you need to prove. The longer you hold the easier it is to argue capital esp 2 to 3 years. There are other factors like intention etc as wrll
 

Snyper564

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By expense you're referring to the funding of the trading account or actual expenses?
Both.

I buy btc for 100 that's an expense.

I also have linked bank charges etc I offset against income.

You need to remember that Sars is fair. You pay tax on profit not income.

Sars allows all expense in the production of income. In my case I deduct things like bank fees, data etc as long as I can prove its linked to the income.

Pls note its linked to crypto income not your salary.
 

saor

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Both.

I buy btc for 100 that's an expense.
That's the part I'm unsure of. I bought my crypto +- 4 years ago and haven't really bought any additional crypto since then. So any trading profits I'm now banking aren't correlated to any recent crypto 'expense', other than that initial expense 4 years ago. I have no outgoing crypto expenses to put in the margin opposite my crypto earnings. Presumably most traders are in this position? They're not funding their trading account monthly - they fund it seldomly and trade the profits in a closed loop for the most part.
 

Snyper564

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That's the part I'm unsure of. I bought my crypto +- 4 years ago and haven't really bought any additional crypto since then. So any trading profits I'm now banking aren't correlated to any recent crypto 'expense', other than that initial expense 4 years ago. I have no outgoing crypto expenses to put in the margin opposite my crypto earnings. Presumably most traders are in this position? They're not funding their trading account monthly - they fund it and trade the profits in a closed loop for the most part.
OK, yours is sorta simple if your info is true. You likely got cgt in this case.

Your purchase of btc is 4 years ago is what is ref to as the base cost of the asset. Say R20k. When you sell now let's say R500k it's proceeds. You pay cgt on the R480k. Please note you cannot deduct that R20k if you don't have the proof you bought it at that price.

When you do your tax return just select I have cgt input proceeds base cost and bobs your uncle.

In the case of traders each trade is looked at sep then totalled together

Trade 1
Exp 100 income 120 prof 20

Trade 2
Exp 120 income 105 loss 15

Total Exp 220
Total income 225
Total profit 5 this is the amount you pay tax on.

Remember you will look at the amount you pay for tax over the annual year of assessment from 1 march to end Feb the following year
 

saor

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OK, yours is sorta simple if your info is true. You likely got cgt in this case.

Your purchase of btc is 4 years ago is what is ref to as the base cost of the asset. Say R20k. When you sell now let's say R500k it's proceeds. You pay cgt on the R480k. Please note you cannot deduct that R20k if you don't have the proof you bought it at that price.

When you so your tax return just select I have cgt input proceeds base cost and bobs your uncle
lol :)

I was actually willing to just suck it up and pay the income tax instead as it seemed easier than digging up all those records for CGT.

So assuming I can find the records of those initial bitcoin purchases...what I did with the bitcoin after that is irrelevant...all the shuffling between exchanges and in & out of altcoin trades...all I need is proof of that initial entry into bitcoin 4 years ago and my profits now fall under CGT?

I guess a secondary question then is: Assuming that falls under CGT, what happens if some % of my trading profits this month goes back into my trading pool for next month. Because then next month some of the profit I bank is comprised of a.) a portion of my initial bitcoin and b.) the previous months profits. I surely can't ride the CGT train indefinitely?
 

Snyper564

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lol :)

I was actually willing to just suck it up and pay the income tax instead as it seemed easier than digging up all those records for CGT.

So assuming I can find the records of those initial bitcoin purchases...what I did with the bitcoin after that is irrelevant...all the shuffling between exchanges and in & out of altcoin trades...all I need is proof of that initial entry into bitcoin 4 years ago and my profits now fall under CGT?

I guess a secondary question then is: Assuming that falls under CGT, what happens if some % of my trading profits this month goes back into my trading pool for next month. Because then next month some of the profit I bank is comprised of a.) a portion of my initial bitcoin and b.) the previous months profits. I surely can't ride the CGT train indefinitely?
If you sell all that btc that's the taxable event. Capital ends there and then. Look if you can find how much you paid still declare it as capital gains just put 0 in your base cast and the income in your proceeds.

When you start trading that's like a fresh start it will then all be income tax as noted above.

So you will have cgt on the historic value and going forward assuming you trading would be income tax.
 

saor

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If you sell all that btc that's the taxable event. Capital ends there and then. Look if you can find how much you paid still declare it as capital gains just put 0 in your base cast and the income in your proceeds.

When you start trading that's like a fresh start it will then all be income tax as noted above.

So you will have cgt on the historic value and going forward assuming you trading would be income tax.
Owe you a beer or a steri-stumpie or whatever. Would be cool to see an in-depth article / video covering all this with a few clear examples that account for the various ways people acquire their crypto and turn profits etc.
 

HavocXphere

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Crypto to crypto is not an issue. Crypto to other fx etc is.
Inclined to disagree.

Barter transactions are most certainly a disposal. And SARS has indicated that exchanging crypto to "goods" is a barter transaction. Which is exactly what you're doing when using an exchange to do BTC > ETH or whatever. The fact that the goods are another intangible asset doesn't change the fact that you're bartering the one for the other.

Just like me bartering a Merc for a BMW and then pretending nothing happened isn't gonna fly just because I insist they're both cars. It simply doesn't work like that.

And the countries that have actually spelled this out (e.g. UK) have deemed crypto to crypto to be a disposal.

Frankly I'm still trying to work out where this "it only counts if it's cash" notion even comes from. All the tax stuff is written as consideration is cash or the market value of the thing you receive.

Not that it matters...very much doubt SARS has the ability to hunt down crypto.
 

Snyper564

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Inclined to disagree.

Barter transactions are most certainly a disposal. And SARS has indicated that exchanging crypto to "goods" is a barter transaction. Which is exactly what you're doing when using an exchange to do BTC > ETH or whatever. The fact that the goods are another intangible asset doesn't change the fact that you're bartering the one for the other.

Just like me bartering a Merc for a BMW and then pretending nothing happened isn't gonna fly just because I insist they're both cars. It simply doesn't work like that.

And the countries that have actually spelled this out (e.g. UK) have deemed crypto to crypto to be a disposal.

Frankly I'm still trying to work out where this "it only counts if it's cash" notion even comes from. All the tax stuff is written as consideration is cash or the market value of the thing you receive.

Not that it matters...very much doubt SARS has the ability to hunt down crypto.
You appear to be correct pls see slide from Bowmans presentation
Screenshot_20210124_222811.jpg
 

Swa

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How does this work in practice though? My employer pays my taxes. Must they now be aware of my other revenue streams so as to know which tax bracket I fall into so they can adjust the tax they're paying for me?


Not quite following...
That is your decision. You can have them deduct extra voluntary tax or pay it in one lump sum at the end of the tax year. Also keep in mind that trading activities can classify you as a provisional taxpayer but this is usually not the case if you're formally employed.

lol :)

I was actually willing to just suck it up and pay the income tax instead as it seemed easier than digging up all those records for CGT.

So assuming I can find the records of those initial bitcoin purchases...what I did with the bitcoin after that is irrelevant...all the shuffling between exchanges and in & out of altcoin trades...all I need is proof of that initial entry into bitcoin 4 years ago and my profits now fall under CGT?

I guess a secondary question then is: Assuming that falls under CGT, what happens if some % of my trading profits this month goes back into my trading pool for next month. Because then next month some of the profit I bank is comprised of a.) a portion of my initial bitcoin and b.) the previous months profits. I surely can't ride the CGT train indefinitely?
You don't need records. You can use the entire value of the disposal as the basis for CGT. Alternatively you can use the market value at the time it was acquired as your cost basis. You only need to submit some kind of proof if SARS decides to do an actual audit as well.
 

Swa

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OK, yours is sorta simple if your info is true. You likely got cgt in this case.

Your purchase of btc is 4 years ago is what is ref to as the base cost of the asset. Say R20k. When you sell now let's say R500k it's proceeds. You pay cgt on the R480k. Please note you cannot deduct that R20k if you don't have the proof you bought it at that price.

When you do your tax return just select I have cgt input proceeds base cost and bobs your uncle.

In the case of traders each trade is looked at sep then totalled together

Trade 1
Exp 100 income 120 prof 20

Trade 2
Exp 120 income 105 loss 15

Total Exp 220
Total income 225
Total profit 5 this is the amount you pay tax on.

Remember you will look at the amount you pay for tax over the annual year of assessment from 1 march to end Feb the following year
Isn't the CGT amount a percentage of the total value that gets added to the normal taxable income?
 
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